Sin tax advocates: This is a Recto ‘Morris’ report

Senator Ralph Recto. INQUIRER FILE PHOTO

Did smoke get in his eyes, making him cry a watered-down sin tax reform bill?

Finance Secretary Cesar Purisima and Health Secretary Enrique Ona, along with civil society groups, expressed disappointment with Sen. Ralph Recto’s ways and means committee report Wednesday on the Senate version of the bill raising hefty taxes on tobacco, beer and other alcoholic drinks.

In his sponsorship speech, Recto presented what he called a “reasonable, realistic and responsible” rendering of the sin tax bill that aims to generate P15 billion in incremental revenues in the first year compared to the P60 billion targeted by the Department of Finance based on its version.

“We thank Senator Recto for his efforts, but they fall short of what we need,” Purisima said.

“I’m very disappointed with the report. The sin tax bill must be credibly passed, or our universal health care will suffer,” Ona said.

Not a Recto report

Said Filomeno Sta. Ana of the Action for Economic Reforms: “This is not a Recto report; it’s a Phillip Morris or a Recto Morris report. Recto has declared war, and war we will engage him.”

Recto’s bill seeks to earn an additional P1.38 billion in excise taxes from distilled spirits, P3.81 billion from beer and other fermented spirits, and  P9.8 billion from tobacco.

“In pegging revenue yield, we adopted a conservative framework that we believe hedges closer to reality. The problem with forecasting revenues using rosy lenses is that they often leave the government in the red,” said the chair of the Senate committee on ways and means.

Recto said that while the original version peddled the promise of P60 billion in incremental earnings for the first year, subsequent “revenue scenarios” drawn up by government tax experts using elasticity tests and average industry growth produced yields way below what was promised.

He said the committee’s revenue projections were “not plucked out of thin air but were faithfully based on the submissions of the BIR (Bureau of Internal Revenue).”

Schedule

Recto’s bill adopted the following schedule:

• Distilled spirits with net retail price (NRP) of less than P90 will have a P20 tax while those priced between P90 and P150 will have an P80 tax; those between P150 and P250 will have a P160 tax while those with a net retail price or more than P250 will be taxed P320. This will be revised every two years, with the NRP cutoffs as well as the excise tax rates increasing by 8 percent.

• For wines, those with a net retail price of not more than P500 will be taxed P250 while those whose net retail price is more than P500 will be taxed P700.

• For beer and other fermented liquor, the current three-tier regime will be collapsed into two tiers using the per liter net retail price cutoff at P50.60 effective March 1, 2013.

• Beer products whose net retail price is not more than P50.60 will be taxed at P13.75 while those with higher than P50.60 will get a tax of P18.80.

• The tax on beer brewed and sold in microbreweries will go up by 36 percent from P20.57 to P28 per liter.

• The tax rates will be increased every two years.

Cigarettes and tobacco

Recto said that beginning March 1, 2013, the tax on a kilo of tobacco prepared but not for chewing would be increased by 47 percent.  The tax on a kilo of tobacco prepared for chewing will be increased by 60 percent.

He said that for cigars, the current two-tiered NRP-based structure would be retained, but the ad valorem rates will be increased starting March 1, 2013.

Hand-packed cigarettes will have a tax increase of 121 percent from P2.72 to P6 per pack beginning March 1, 2013.

Recto said that while the tax on premium cigarettes would be reduced to P14—representing a 51-percent drop in excise tax due per pack on the first two years, the tax on other classifications of machine-packed cigarettes would be increased.

Low-priced cigarettes will be imposed a significant 121-percent increase from P2.72 to P6 per pack of 20s; mid priced cigarettes, a 32-percent rise from P7.56 to a P10 tax, and high-priced cigarettes, a 17-percent increase from P12 to P14 tax per pack.

Recto said that starting March 1, 2015, the restructured system would be reformed so that the net retail price cutoffs shall be P15 and P18 per pack of 20s and the excise tax rates increased. Thus, cigarettes with a net retail price of less than P15 would be taxed at P7.50; those priced between P15 and P18, a tax of P10.50, and those priced (excluding taxes) at more than P18, P14.50.

Collections higher this year

Excise tax collections from alcohol and tobacco in 2011 reached P50 billion, he said, and that this was expected to be surpassed this year.

“This measure adds P15 billion on the first year. Whatever the final amount that will be plowed back to taxpayers, it will be at a level that will improve the lot of beneficiaries. This bill identifies a raft of recipients who will receive the rebates,” Recto said.

“True to its billing, most are health-related mandates, from PhilHealth premiums for the poor to rural hospitals,” he added.

Recto said there would also be something for tobacco farmers “to ease their transition to other crops.” He said the bill proposes that P1 billion a year be given to provinces producing burley and native tobacco for alternative projects.

For the health sector, Recto said the bill earmarked 50 percent of the total sin tax proceeds to the public health sector, “which amounts to roughly P33 billion, of which 40 percent will go to PhilHealth to benefit at least 10.4-million families.”

“The balance of 10 percent, or P6.5 billion, will be equally distributed among regional hospitals of the Department of Health and district hospitals run by LGUs (local government units),” Recto said.

“Thus, each of the 16 regional hospitals will receive P200 million while each of the 618 LGU-run district hospitals will get P5.25 million annually,” he added.